Goldman upgrades HSBC to 'buy'

The West Australian

Wednesday, 12 August 2009 11:07AM

HSBC, Europe's biggest bank, had its stock rating raised to buy from neutral at Goldman Sachs, which said the company may benefit from a yuan trade settlement program and possible write-backs as asset markets stabilise.

The yuan trade settlement program, if it transpires, may boost growth in HSBC's trade finance, cash management and foreign exchange business well ahead of our estimates, Goldman Sachs analysts including Roy Ramos and Gurpreet Singh Sahi wrote in a report today.

Hong Kong is aiming to be the first centre outside of mainland China to use local-currency settlement, part of a bid to become a yuan finance hub.

Chinese Premier Wen Jiabao in March expressed concern the dollar would weaken and was promoting greater use of the yuan in transactions with trade partners.

Goldman Sachs lifted its target price on HSBC to HK$84 from HK$55, and said it expects losses related to the banks U.S. subprime businesses to be gradually wound down.

The bank said in March business was in line with its own forecast in February after it released details of plans to raise 12.5 billion pounds ($19 billion) in the UK's biggest rights offering.

HSBC has no plans to raise capital in the near term, Hong Kong's South China Morning Post cited Sandy Flockhart, the banks Asia-Pacific chief executive officer, as saying in a May 1 report.

HSBCs stock plunged 19 percent on March 3, the day after announcing the share sale. It has gained 54 percent since.